I’ve been trading for 18 years. The beautiful part about it is that I am ALWAYS learning. The second you think you know everything and have the stock market all figured out, you’re dead! The lesson I am about to share is not a “new” lesson, but rather, one that has been reinforced this year. That lesson is: You have to constantly adapt to what the market gives you. As Paul Tudor Jones says: “You adapt, evolve, compete, or die.”
Example #1
Earlier this year, I was getting annoyed. It seemed like the averages kept grinding up, but individual stocks were not moving. It bothered me because I trade individual stocks and do not like trading ETFs. Why? Because in my opinion, if you want average returns, trade the averages. Rather than complain about it, I made a slight adjustment. I started to trade the Russell 2000 ETF (because it was the strongest index). At the end of the first quarter, I was up +7% and HALF of my gains came from my ETF trading. Again, I don’t like trading index ETFs, but I made this change because it was what the market was giving me.
Example # 2
In May, something magical happened. Individual stocks started to decouple from the averages. For example, the S&P 500 was barely up from May through August, but individual growth names such as $TSLA $YELP $Z $FB $SINA $NQ $YY all went up 50-100%! The market was telling me something different, so I stopped trading ETFs and focused only on individual stocks.
One last thing to keep in mind, there will be times when the market tells you to do nothing. That’s when the true discipline comes in. For example, my strategy is trading aggressive growth stocks based on technicals. I know there will be times when breakouts won’t work and I will have to adjust again or sit out completely. That’s the great part about the stock market. If you pay attention to the price action, it constantly tells us something. The key is to be flexible enough to adapt along with it. Good luck trading!
I can be reached at: jfahmy@zorcapital.com.
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